Abbott to Pay $6.6 Billion for Belgian Drug Unit

DUFF WILSON

Monday

Sep 28, 2009 at 4:18 AM

Abbott Pharmaceuticals announced a deal to acquire the prescription drug unit of Solvay, people close to the discussions said.

The big American drug maker Abbott Laboratories said Monday that it would acquire the prescription drug unit of the Belgian company Solvay in a deal worth about $6.6 billion in cash and take sole possession of their shared cholesterol drug venture.

The deal, set at 4.5 billion euros, also includes a provision for up to 300 million additional euros, or $440 million, in future payments that would be linked to product milestones from 2011 to 2013.

In acquiring Solvay’s pharmaceuticals business, Abbott, based near Chicago, will take sole possession of the TriCor cholesterol pill, which it was sharing with Solvay and had more than $1.3 billion in sales for Abbott last year. Abbott will also acquire sole rights to Trilipix, a new cholesterol treatment approved by the Food and Drug Administration last December and marketed as TriCor’s successor.

Abbott will also acquire Solvay’s drugs for hypertension, hormone replacement and neurological and other conditions.

While most of the world’s mergers-and-acquisitions business has been dormant during the recession — until recent signs of life like Walt Disney’s $4 billion purchase of Marvel Entertainment and Kraft Foods’ unsolicited bid for Cadbury — cash-rich drug makers have been on buying sprees this year.

That includes Pfizer’s $68 billion deal for Wyeth in January, a deal that helped break a logjam of possibilities stalled by the credit freeze. In March, Merck paid $41 billion to acquire Schering Plough, and Roche paid $47 billion to buy the remainder of Genentech.

For Abbott, the Solvay deal is but one of a series of deals this year. And other potential buyers in the hunt for acquisitions include Bristol-Myers Squibb, Johnson & Johnson, and Eli Lilly and Company, according to a Sept. 17 report by analysts at Credit Suisse.

Pending health care legislation in Congress is not considered a deterrent for pharmaceutical acquisitions, because the drug makers are expected to do well in whatever emerges from Washington. The industry has a potentially winning political argument that its drugs prevent disease and save medical costs. And the industry stands to benefit from the addition of tens of millions of Americans to the ranks of the insured, under a health care overhaul.

Solvay put its drug business up for sale this year. The unit last year accounted for 28 percent of Solvay’s billion euros in revenue. Although the drug revenues have helped fill gaps in Solvay’s chemicals and plastic businesses through the recession, analysts say the company is now looking to expand in other core areas, probably chemicals.

Abbott outbid Nycomed of Switzerland for Solvay’s drug business. Abbott had been rumored since July to be a potential acquirer. On Sunday, Solvay set a press conference for 10:30 a.m. Brussels time on Monday (4:30 a.m. New York time).

Abbott had sales of $29.5 billion last year and $5.2 billion in profit, not counting one-time items. Its top product is the arthritis drug Humira, with $4.5 billion in sales.

But future growth projections for other big Abbott products are potentially more challenging, analysts say, with patents expiring on TriCor in 2011, and in 2013 for the cholesterol fighter Niaspan and the prostate cancer drug Lupron. The H.I.V. treatment Kaletra loses patent protection in 2016.

David S. Moskowitz, an analyst for Caris and Company, said the deal would be a good fit for both companies. “It makes sense,” he said on Sunday. The price, slightly less than double last year’s revenues for Solvay drugs, indicates that Solvay’s drug business was relatively mature without a lot of growth potential, Mr. Moskowitz added. “It’s a reasonable price,” he said.

Catherine J. Arnold, senior pharmaceuticals analyst at Credit Suisse, wrote to investors on Friday to say an Abbott-Solvay deal would add to Abbott’s earnings, but that it was “more like financial engineering” by using cash to buy revenues. The deal, she wrote, would increase Abbott’s bet on the cholesterol pills even as TriCor’s patent is about to expire and the company faces challenges getting patients to switch to Trilipix.

Further, Ms. Arnold wrote, it would fail to diversify Abbott’s product line much beyond Humira, which is expected to contribute 35 percent of the company’s sales growth the next three years.

In Ms. Arnold’s opinion, Abbott would be better off pursuing “strategic assets that would provide more access to innovation.” She cited Alexion Pharmaceuticals and BioMarin Pharmaceutical as worthy targets.

The Solvay purchase would be the latest in a series of Abbott acquisitions this year. Two earlier deals focused on eye care companies: Advanced Medical Optics for about $2.8 billion in cash and assumed debt in January, and this month, Abbott said it would buy Visiogen for $400 million cash.

Abbott also announced the purchases of the nutrition businesses of Wockhardt Ltd. of India for $130 million cash in late July, and Evalve, a cardiovascular technology company, for up to $410 million, this month.

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.